If you have time for 1, you have time for 100.
You’ve been approached by a potential acquirer. What should you do? Should you take the call? Sign the NDA? Share financial information?
The likelihood that you’ve been approached by a strategic or financial buyer is high given the overall market activity currently. The market is hot. You need to play the inbound interest very carefully though. If it is a competitor, do you really want to open the kimono if you haven’t spoken with the entire market to calibrate value and structure?
I’ve seen CEOs try to manage this inbound interest themselves and fail regularly. They figure that they’ll test the waters and get a sense of what their company is worth. Wrong. If you are talking to one buyer or trying to manage the process yourself, you are putting yourself in a weak position.
If you’ve attended any of our events, you’ll recognize the viewpoint that one buyer is no buyer. Meaning that the probability that you’ll close a transaction with one buyer at the table is low. The math is not in your favor. Eleven percent of the time inbound interest to acquire your business actually results in a transaction and seventy-five percent of the time there is another buyer out there that will pay more.
A buyer will also know that if you are trying to manage a process yourself, the maximum number of buyers that you can talk to is two, maybe three. There is no way that you can run an effective process yourself and still run your business. Buyers know this and leverage it to their advantage.
So why only talk to one buyer then? Why not increase your probability of attaining an optimal outcome with a global process? Let’s look at the time involved to talk to one buyer versus the time to talk 100 with a global process.
Self-Managed Process:
If you were to attempt to manage a process yourself the estimated time it would take is shown in the table below. The amount of time required and typical steps are indicated below: from an introductory phone call thru negotiating and signing an an LOI with one buyer. Phone calls, deck preparation, buyer presentations, meetings with your team and your board and LOI negotiations would take an estimated 42-84 hours.
| Stage | Min | Max |
| Intro Phone Call | 1 | 3 |
| Follow Up Phone Call | 1 | 3 |
| Deck Preparation | 12 | 20 |
| Buyer Presentation | 2 | 4 |
| Follow Up Phone Call | 1 | 2 |
| Internal Meetings with Team | 10 | 20 |
| Buyer Meetings | 4 | 10 |
| Board Meetings to Discuss M&A | 10 | 20 |
| Total | 42 | 84 |
Professionally Managed Process:
For a professionally managed process, the steps that the CEO is participating in are identified below. The amount of time is equivalent to a self-managed process for the ability to get your company in front of 80 to 100 buyers.
| Phase | Stage | Metric (Hours) | Min | Max | Weeks |
|---|---|---|---|---|---|
| Preparation | CEO Worksheet | 2 | 3 | ||
| Preparation | IPM Meeting | 3 | 4 | ||
| Preparation | Travel | 4 | 6 | ||
| Preparation | Document Review | 8 | 10 | ||
| Preparation | Management Presentation | 4 | 8 | ||
| Outreach | Weekly Status Updates | .5 | 5 | 10 | 10 |
| Outreach | Mangement Presentation + Debrief (3-10 Presentations) | 1.5 | 4.5 | 15 | |
| Discovery | On-Site Meetings with Buyer(s) | 4 | 20 | ||
| Discovery | NDA Review and Signing | 0.333 | 2 | 4 | |
| Negotiations | LOI Negotiation | 4 | 10 | ||
| Total | 40.5 | 90 |
Timeline:
So, how much estimated time will it take for you as the CEO to run an process from preparation to close? The timeline below lays out the steps in a professionally managed process including due diligence and SPA/APA contract negotiations. You should budget 38 to 74 hours for the preparation, outreach and deal negotiations phases. For due diligence 6-15 hours per week is reasonable and you’ll likely have other team members such as your CFO working with you. And then finally the SPA/APA negotiations in the latter part of the process will likely take up 2-5 hours per week during the time that the deal documents are being negotiated.
If you look solely at the amount of time you’d invest to sell your company to one company in a self-managed process versus running a professional process with the ability to get to 80 to 100 companies, you can see that the amount of time is equivalent. You tilt the numbers significantly in your favor by increasing the number of buyers by a factor of 80 to 100 that you’ll be able to be marketing your company to in a professionally managed process. This is a no-brainer.